Investor’s first read – Brooksie’s edge before the open
Tuesday, September 4, 2012 9:13 a.m.
DJIA: 13,090.84
S&P 500: 1406.58
Nasdaq Comp.: 3066.96
Russell 2000: 812.09
We are fast approaching the “Best six months for owning stocks” (November 1 to May 1.*
For months, the Fed has assured us it would step in if the nation’s economy continued to falter, and Chairman Ben S. Bernanke confirmed that (again) Friday in his annual address to the Fed’s symposium at Jackson Hole, Wyoming.
Bernanke defended his monetary policies while indicating the Fed would soon renew bond purchases in an effort to reduce the unemployment rate and stabilize the economy. Currently the U.S. unemployment rate is 8.2%, 7.1% excluding government unemployment.
The Federal Open Market Committee (FOMC) meets September 12 – 13, when it is expected to take action.
More and more, we will hear the words “open-ended” strategy for bond buying referring to “flexible” approach to bond buying rather than targeting a specific amount. This would give the Fed the option to adjust purchases in line with the economy’s response.
Between 2008 and mid-2011, the Fed bought $2.3 trillion of Treasuries, federal agency debt and mortgage-backed securities. QE1 accounted for $1.7 trillion in purchases, QE2 $600 billion.
Any new program is expected to approximate that done in QE1. How effective will this be?
In my opinion, not a lot in terms of accelerating economic growth, but a lot in averting a recession. It stands to reason, an economic recovery following a historic recession and financial meltdown will take time – a no-brainer for most people.
Will the rate of inflation pick up along with a recovery when it accelerates? Will interest rates rebound?
Yes for both.
When that happens (or when the Big money perceives it is about to happen) long-term bonds will plunge in value.
TODAY: This is the first trading day of September. We can expect institutions to increase activity, most likely on the buy side. As the Democrats meet for their convention, the uncertainty of the November elections will now take center stage. Not far behind
will be the ugliness of the fiscal cliff and issue about taxes and spending. Countering that, are a couple positives. 1) A more clearly defined Fed plan to stimulate the economy. 2) The same for Europe, Japan and China.
Fed action is viewed as a positive, but global action to goose economies, well, that’s BIG, very, very BIG. The European Central Bank (ECB) meets Thursday.
Resistance begins at DJIA 13,144 (S&P 500: 1413). Support is DJIA 13,050 (S&P 500: 1403).
FACEBOOK (FB) at $18.06:
FB doesn’t have to go out and build a base, not with an estimated 800 million users. They do have to monetize it. It’s hard to believe the company’s management has not clarified its means and ability to do that. How could an institution not demand an answer to this question before sinking big bucks into it at $38 a share? At some point, the answer to the monetization issue will surface; that’s when FB begins its ascent.
In the meantime, it will have to find a comfort level where the uncertainty of monetization is discounted and from a technical standpoint that looks like lower prices.
Without a piece of exceptionally good news, look for resistance to the upside to start at$18.42. A break below $18.00 sets the stage for accelerated selling below $17 a share.
I don’t own, nor have I ever owned FB. Generally, I don’t recommend or comment on individual stocks. I started covering FB technically after its IPO because I felt at $34 it was very vulnerable in face of all the misunderstanding and hype. At some point, I will drop coverage. I would like to see readers through the full cycle, from the $34 where I picked it up as “going lower” down to a bottom.
ECONOMIC REPORTS: Big week.
TUESDAY:
ISM Mfg. Index (10:00): Was 49.8 in July vs. 49.7 in June. New Orders were 48.0 vs. 47.8 in June.
Construction Spending (10:00): Up 0.4% in June after a 1.6% rise in May.
WEDNESDAY:
Productivity (8:30): Improved in Q2 in spite of slowing in output as it jumped at an annual rate of 1.6% vs. a drop of 0.5% in Q1.
THURSDAY:
ADP Employment Report (8:30): Private payroll employment rose 163,000 in July following a revised 172,000rise in June.
Jobless Claims (8:30): Claims were unchanged in the week ending August 25 at 374,000 bringing the 4-week average to 370,250.
ISM Non-Mfg Index (10:00): Rose 0.5 to 52.6. New Orders rose 1.0 points to 54.3. Business activity jumped 5.5 points to 57.2.
FRIDAY
Employment Situation (8:30): Increased 163,000 in July after a gain of only 64,000 un June and 87,000 in May. Private payrolls gained 172,000 in July after a gain of 73,000 in June.. The average workweek held at 34.5 hours, unemployment increased to 8.3% from 8.2% in June.
George Brooks
*Stock Trader’s Almanac: More on this in coming weeks.
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The writer of Investor’s first read, George Brooks, is not registered as an investment advisor. Ideas expressed herein are the opinions of the writer, are for informational purposes, and are not to serve as the sole basis for any investment decision. Readers are expected to assume full responsibility for conducting their own research pursuant to investment decisions in keeping with their tolerance for risk.
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